The Hopes and Fears of Detroit’s Unprecedented Emergency Management

If you haven’t been following the goings-on in Detroit, this should bring you up to speed: Its elected leadership has lost control of the city. In April a state-appointed emergency manager, Kevyn Orr, signed an order effectively relegating city officials to the sidelines and placing himself in full control of Detroit’s policy apparatus. Nothing can be enacted without his approval.

The negation of local democratic control is stunning. But it isn’t anything new in Michigan, home to four other cities and three school districts under full emergency managerial control. State intervention in crisis-ridden municipalities has happened before — New York in 1975, Philadelphia in 1991, Camden, N.J. for most of the early 21st century — but no other state has a law as powerful or all encompassing as Michigan’s Public Act 436. And other states are closely watching Michigan’s experiment. In March 2012 Indiana Gov. Mitch Daniels signed a similar law into effect with little fanfare.

“The fundamental fact is that cities are creatures of state governments, so they have very limited rights on their own behalf,” says Michael Katz, a professor of urban history at the University of Pennsylvania. “Legally state governments can do this. I don’t think there is any question about that. The question is about the advisability of the consequences. Was this the only way to handle it?”

In June the small municipality of Hamtramck, surrounded on almost every side by Detroit, requested that Michigan Gov. Rick Snyder appoint an emergency manager to take control of its own finances. This marks the second time since 2000 that the town will be brought under state control. The city of Flint has also undergone multiple rounds of emergency managerial control.

“Can this style of response to city financial crises create a sustainable model for cities to flourish in future? It’s hard to see how that can happen,” says Samuel Bagenstos, a professor at the University of Michigan’s law school and, until 2011, the second-highest ranking official in the Justice Department’s Civil Rights Division. “There is a need sometimes to have short-term technocratic control in places that are having difficulty paying their bills. But solving the managerial problems doesn’t solve the underlying trend of deindustrialization.”

In this case, there is an undeniable racial element. Detroit is more than 80 percent black, with an all-black city council and an uninterrupted line of black mayors going back to 1974. Orr is African American and self-described “lifelong Democrat,” but was appointed by Snyder, a white Republican, under legislation passed by white Republican lawmakers in Lansing (after the previous iteration was overturned by a popular referendum weeks earlier).

With Detroit now under emergency management, about half of Michigan’s African-American population lives under leaders who were not democratically elected. Only 1.3 percent of white residents live in the affected areas, according to a May press release from the Detroit chapter of the NAACP, which is challenging Snyder’s right to appoint emergency managers. The lawsuit claims that the law violates the 14th amendment. The Detroit-based Sugar Law Center filed suit in March for similar reasons. Numerous prominent civil rights leaders have denounced the law and Orr’s appointment in particular. Jesse Jackson called it “a dangerous precedent for our nation.”

The independent city of Hamtramck, Mich. requested that Gov. Rick Snyder place it under emergency management. Credit: Ian Freimuth on Flickr

Despite such heated opposition, the dominant mood in Detroit is one of resignation and, in some quarters, even a guarded optimism that Orr may be able to help reverse the city’s decline.

“I don’t know anyone who is thrilled that we have an emergency manager, but I will say that most Detroiters I’ve spoken with… we just want something to happen,” says Michael Brady, a longtime Detroit resident and attorney who works on vacant land issues. “When we were electing our leaders directly, they weren’t getting it done. Is Orr going to do it? I don’t know. But if he can, good. I’d rather have the lights on.”

Orr has 18 months to get Detroit’s finances in order. That’s a short time to undo generations of population decline, capital flight and discriminatory public policy. Great swaths of Detroit are plagued by dysfunctional or dead streetlights, and in the last four years the city was hit with 70,000 foreclosures on top of the tens of thousands of already vacant homes.

“In 2012 alone, Detroit lost $1.347 billion in wealth because of the foreclosure crisis,” writes Dianna Feeley, a retired autoworker and a member of Detroit Eviction Defense. Meanwhile, the city is struggling under $3.8 billion in interest rate swap deal obligations, which were set under fishy circumstances best explained in this by MSNBC’s Ned Resnikoff, and have been challenged in court by other municipalities. The operating deficit for the budget that began on July 1 is $387 million, according to Orr’s office, and the city’s long-term debt is more than $18 billion.

“The city’s general fund budget is about $1.3 billion, so even if we stopped providing all services and just paid our debt, we couldn’t pay it off in almost 20 years,” Orr spokesperson Bill Nowling says. “But we can’t stop doing everything else.”

In June Orr unveiled an aggressive plan to restructure the city’s debt and free up $1.25 billion to spend on infrastructure and civil services over the next 10 years. The plan would require both bondholders and pensioners, who could expect as little as 10 cents on the dollar, to take a haircut that threatens to cut the scalp. Meanwhile, Detroit did not pay $39 million due to creditors.

Even more significantly, Orr seems to be asking for actual shared sacrifice instead of forcing municipal employees and citizens to bear the bulk of the burden, as is so often the case during fiscal crises. The proposal would, in the words of the New York Times, “flatten the traditional hierarchy of creditors, putting say, a retired librarian on par with an investor holding a general obligation bond.” This would be accomplished, in part, by reclassifying the city’s bonds into multiple distinct types, some of which would be worth considerably less than investors hoped. Fierce pushback is expected.

“The path he laid out… includes unions and city pensions, but it also includes bankers who have a huge percentage of the city’s debt,” Brady says. “Over the years, not just in Detroit but in general, they’ve done a really good job of making sure the laws are very clear about giving banks priority, making sure they get paid. Ten cents on the dollar is only possible because of the emergency manager law.”

Retirees and city unions aren’t being spared, either. Orr’s office announced that the city’s pension shortfall is not the modest $644 million reported in 2011, but closer to $3.5 billion. He began a probe into possible corruption and mismanagement in the city’s two major pension funds, which many see as a prelude to a possible takeover (Orr is empowered to oust trustees). Labor unions are planning to fight back.

“Gov. Snyder said there’s got to be shared sacrifice, and everybody’s got to feel the pain,” says Edward McNeil, special assistant to the president of AFSCME District Council 25 and the negotiator for a coalition of unions who offered up $182 million in concessions during the last round of contract talks with the city. “They know all these people got the money, so why don’t they get the money from the big people who’ve got it instead of screwing with the little people again?”

Orr and his team have proposed a number of other policies to repair the city’s finances, from transferring its Water Department to a regional authority to selling off the Detroit Institute of Art’s collection. It’s unclear what kind of job losses can be expected, but other Michigan cities under emergency management have seen their workforces decimated along with many of the region’s few remaining good working-class jobs.

There is no exact precedent for this scale of state intervention in a municipality. The longest state takeover of a municipality lasted from 2002 to 2010, when Camden was ruled by appointees from Trenton empowered by language similar to Detroit’s emergency manager law. But the city is more similar to Flint than Detroit in size, and the state intervention had little effect on its fortunes.

During New York’s infamous fiscal crisis , amid a nasty recession and a recalcitrant presidential administration (“Ford to City: Drop Dead”), the city was brought under the eye of the Municipal Assistance Corporation and the Emergency Financial Control Board. They largely consisted of state appointees, many from the banking industry, and demanded austerity measures that included the institution of tuition at the City University of New York, wage freezes, fare hikes and public employee layoffs. In 1991, in the middle of another recession, Philadelphia experienced its own bout of state financial oversight. But in neither case was the intervention as far-reaching as the current emergency managerial regime in Detroit.

“All three of these places had problems. But if the problem is viewed as a temporary confluence of events, then oversight [is just], ‘We’ll just come watch you, make sure you clean up your mess in the short run, then we are out of there,’” says Robert P. Inman, a professor of business economics and public policy at the University Of Pennsylvania’s Wharton School.

“That’s what happened in Philadelphia,” Inman continues. “The oversight board is still around but it is really not having any kind of substantive effect on the city’s fiscal policy. Similarly with New York City’s Municipal Assistance Corporation. Detroit, in contrast, has to make fundamental changes. It’s got to really downsize its government and redefine its service levels. That’s going to require not temporary oversight, but longer-term decision making from the outside.”

The situation is made worse because neither Lansing nor Washington, D.C. is in much of a giving mood these days. Ford eventually cracked and helped New York out of its mid-1970s fiscal crisis. President Obama is perfectly willing to bail out the auto industry, which sits on a hefty stack of profits and mostly isn’t hiring in Detroit, but not Motor City itself. State aid, in the meantime, is on a sharp downward trajectory, especially for Michigan’s larger cities.

“We can have that argument [over diminishing state aid], or we can just say the money’s gone, and what are we going to do now that we don’t have it?” Nowling says. “It’s not so much that we have a revenue problem. We have a spending problem.”

Detroit’s dysfunction is more profound than Orr is empowered to handle, as it’s the result of the flight of the auto industry and conscious policy decisions that formed and sealed segregated black communities into inner-city ghettos. Decades of exclusionary public policy resulted in “a largely black and very poor city surrounded by a ring of affluent white suburbs [giving] resonance to images of Detroit as a center of American apartheid,” Thomas Sugrue concluded in his seminal book The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit.

There simply isn’t that much that emergency managers can do in the face of these macro-historical trends. They only have access to the tools of austerity, and even in that extremely limited field they are restricted — they cannot raise taxes. But while the state’s man in Flint recently admitted that increased revenue may be needed, his idea of taxing deeply impoverished residents hardly seems likely to bear substantial fruit. At best the emergency managerial control is a Band-Aid on a grievous injury.

“At best you get involved in a cycle where you keep going back [to emergency management] because you aren’t solving the underlying problem,” Bagenstos says, adding that an alternative is to think “in a long term way about the people that live in these cities are going to need and how we are going to pay for them.”

That might mean, he says, not only restructuring a city’s financial obligations, but also its ability to raise revenue and collect aid from the state.